Monday, July 4, 2016
Anne Tucker (who, together with Haskell Murray, me, and many others, attended the 8th Annual Berle Symposium in Seattle a week ago) penned an excellent post last week on the importance of shareholder value under Delaware law. Her post covers important outtakes from the symposium presentation given by former Delaware Chancellor William (Bill) Chandler and Elizabeth Hecker, both lawyers in the Wilmington, Delaware office of Wilson Sonsini Goodrich & Rosati. In the post, Anne accurately and succinctly summarizes a key take-away from the former Chancellor's remarks:
[A] Delaware court will invalidate a board of directors' other serving actions only if they are in conflict with shareholder value, but never when it is complimentary. And there is a expanding appreciation of when "other interests" are seen as complimentary to, and not in competition with, shareholder value maximization.
Specifically, as Anne's summary indicates, Chancellor Chandler stated his view that a Delaware corporate board must place shareholder financial wealth (whether in the short term or the long term) ahead of any other value in its decision making. This is hardly a surprise to anyone who follows Delaware corporate law judicial opinions (although the former Chancellor's statement of the law was among the clearest and most definite I have heard). After all, Chancellor Chandler's opinion in the eBay case is widely cited for this proposition.
The Berle symposium focused on benefit corporations this year, and my draft paper for the symposium highlights the central importance of a corporation's charter-based corporate purpose in that type of firm. So, I asked the former Chancellor for his personal view on how a Delaware court might handle a specific type of corporate purpose clause in a non-benefit-corporation Delaware corporate law context. The specific corporate purpose clause I had in mind is one that expresses a clear "second bottom line" (other than the promotion of shareholder value) and clearly indicates that neither bottom line is to be given constant or presumed precedence over the other in decisions made by the board of directors or the corporate officers.
His eventual answer was to note that a corporation's chartered purpose and the fiduciary duties of its board are two separate matters. True, of course. And (although I am no litigator) injunctive relief likely would be available for a stockholder desiring to hold noncompliant directors or officers to the charter-based bargain that defines their joint participation in the corporate venture.
Having said that, it also seems fair to note that the fiduciary duties of a board of directors are owed to the corporation (although many cases point out that the primary beneficiaries of those duties are the stockholders, and a number of cases reference--relatively inconsistently--a duty to the corporation and its stockholders), and those duties comprise a mandate that the board act in the best interest of the corporation (as well as on a fully informed basis and in good faith). The corporation's chartered purpose no doubt offers critical information about actions that are and are not in the corporation's best interest. The matter is worth further thought and analysis, imv.
I will have more to say about these issues and my related thoughts about shareholder wealth maximization in a piece I am writing for the Washington & Lee Law Review for a symposium this fall honoring the scholarship of Lyman Johnson and David Millon. But for today, I want to note that fiduciary duty questions of this kind are handily answered through the application of a duty of obedience--currently operative predominantly in the non-profit corporate context and apparently never expressly invoked in a Delaware corporate law opinion (according to an excellent article written by Alan Palmiter published in the New York Law School Law Review back in 2010/11). The duty of obedience requires corporate directors (and presumably officers) to comply with the corporation's charter and bylaws and the law under which the corporation is organized. Read Alan's article for more.